Have you considered reserving a portion of your legacy for a charitable organization or philanthropic endeavor?
Many high-net-worth individuals do so out of a desire to make a difference while also minimizing the taxes incurred by their estate and/or their heirs upon their passing and/or obtaining income tax deductions during their lifetime. However, careful planning is required to realize maximum impacts and benefits from any charitable vehicle.
Smith Legacy Law provides knowledgeable legal counsel and advice to individuals and families seeking to integrate philanthropy into their estate planning efforts. Whether you’re interested in exploring a charitable trust, a private foundation, or simply intend to leave a charitable gift in your Will or Trust, our experienced and knowledgeable attorneys are ready to assist you in achieving your objectives.
Options for Philanthropic and Charitable Giving
The simplest way to incorporate philanthropic giving into your estate plan is to include a charitable gift to a worthy cause in your Will or Trust. However, to ensure your donation has the greatest possible impact and maximize the tax benefits of your gift, a more strategic approach is likely a wiser course of action. Depending on your needs and goals, such a strategy could encompass one or more of the following options:
Donor Advised Fund
A DAF is sponsored by a public charity. You make an irrevocable contribution to the sponsoring charity. Once your DAF has been funded, you can recommend grants to any IRS-qualified public charity over time.
Incorporating a DAF within your overall estate plan can provide several impactful benefits, including the ability to remove assets from your taxable estate and create a legacy that continues beyond your lifetime. Your initial DAF contribution will also be eligible for an immediate tax deduction even though the fund may spread out the ultimate gifts to charity over a number of years.
Establishing a private foundation is more complex than contributing to a DAF in terms of structure, ongoing administration and governance. However, this type of charitable vehicle is ideal if you intend to make a substantial gift, wish to exercise more control over how the funds are managed and disbursed over time, intend to fundraise and/or provide direct charitable services through your foundation.
You’ll receive an income tax deduction – up to certain limits – for the full value of appreciated assets transferred to the foundation during your lifetime and avoid the capital gains tax on the sale of those assets. The foundation can survive beyond your death and be named a beneficiary of your estate, reducing or even eliminating estate tax liability. The foundation can also receive contributions from other individuals and organizations to support its charitable activities.
Charitable Remainder Trust
A CRT is an irrevocable trust that splits an estate’s assets between charitable and non-charitable beneficiaries. The trust can generate an income stream for you and your beneficiaries during your lifetimes, with the remaining assets distributed to one or more named charities at the end of a specified term or once the last remaining beneficiary has passed away.
A charitable remainder annuity trust (CRAT) distributes fixed annuity payments yearly but does not allow the creator to make additional contributions. A charitable remainder unitrust (CRUT) distributes a fixed percentage based on the balance of the trust assets. Additional contributions can be made after the trust is established.
Charitable Lead Trust
A CLT is an irrevocable trust that generates a potential income stream for the named charitable beneficiary, with the remaining assets eventually going to non-charitable beneficiaries. A CLT is not tax-exempt, and tax treatment will depend on the specific type:
- Non-Grantor CLT: The grantor receives an immediate tax deduction for the value of property transferred to the trust. Trust income is taxable to the trust but not the grantor and trust income is offset by the amount paid to charity during the year.
- Grantor CLT: The grantor takes an immediate tax deduction for the present value of the future payments to the charitable beneficiary within certain limits. Trust income is taxable to the grantor and trust income is not offset by the amount paid to charity during the year.
CLTs can be a good option if you seek to reduce estate and gift taxes when assets pass to your heirs and can use the present income tax deduction arising from the initial gift to the CLT. Because CLTs typically last for many years, the trust funds can grow significantly over time, thus allowing for the total amount ultimately paid to charity to be higher than a one-time gift.
Learn More About Our Philanthropic Giving and Charitable Planning Services
As your lawyers for life, Smith Legacy Law can act as your trusted advisors and counselors in your estate planning endeavors. Our attorneys are ready to help you better understand your options for philanthropic giving and develop a plan that will benefit your favorite causes, your estate, and your heirs to the maximum extent possible.
To learn more about Smith Legacy Law’s Philanthropic Giving and Charitable Planning services, please contact our firm today to arrange for a free consultation.
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Contact an Experienced Charitable Giving and Philanthropic Planning Attorney Today
Leaving a legacy to a worthy cause is admirable, but the rules surrounding such an endeavor are complex and vary greatly from state to state.
Smith Legacy Law has the knowledge and experience to help you identify and establish charitable and philanthropic vehicles for maximum benefit and impact.